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7 Key Metrics for Evaluating Equity REITs

Equity REITs are difficult to evaluate with P/E ratios and book value. Try these instead.

Equity real estate investment trusts, or REITs, can be excellent long-term investments, with high dividends and the potential for property appreciation. However, these companies are tough to analyze if you use some of the same metrics you use to evaluate other stocks.

For example, many equity REITs report little or even negative earnings per share, or EPS, quarter after quarter, yet their share prices continue to rise and dividends continue to be paid. Book value is another good example -- many REITs trade for several times their book value, which doesn't really make sense. After all, a company in the business of owning properties should trade for roughly its equity in those properties.

With that in mind, the slideshow below explains why certain traditional metrics don't work for REITs and presents seven metrics you can use when evaluating an equity REIT that can give you a clear picture of how much money it's making, how cheap or expensive it is, and how financially strong it is.

Author

Matt is a Certified Financial Planner based in South Carolina who has been writing for The Motley Fool since 2012. Matt specializes in writing about bank stocks, REITs, and personal finance, but he loves any investment at the right price. Follow me on Twitter to keep up with all of the best financial coverage!
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